The case arose after the board of Wynn Resorts decided to redeem the shares owned by certain of the company’s shareholders (referred to in the opinion as the “Okada Parties”) in exchange for a promissory note with a principal value of $1.9 billion, which the Okada Parties alleged is only a fraction of the value of the redeemed stock. The authority for the redemption was Article VII, § 2(a) of the company’s Articles of Incorporation. In making the decision to redeem the shares, the board received a report of investigation by former federal judge and FBI director Louis Freeh and his firm as well as advice from two law firms. In the ensuing litigation, the board asserted a business judgment rule defense. The Okada Parties then sought to compel disclosure of the legal advice. The trial court agreed, stating:

“[t]o the extent that information was provided to the members of the board of directors for their consideration in the decision-making process and their defense related to the business judgment rule the Okada [P]arties are entitled to test whether the director or officer had knowledge concerning the matter in question that would cause reliance thereon to be unwarranted.”

Sitting en banc, the Nevada Supreme Court disagreed:

NRS 78.138 is unambiguous. The plain language of the statute is clear as to two vital contentions in this case: (1) the Board is “presumed to act in good faith, on an informed basis and with a view to the interests of the corporation,” and (2) the Board can establish that it meets that presumption by relying on “reports” and “[c]ounsel,” as long as the Board did not have “knowledge concerning the matter in question that would cause reliance thereon to be unwarranted.” NRS 78.138(2)-(3). Nothing in the statute’s plain language indicates that in meeting the requirements of Nevada’s business judgment rule as codified in NRS 78.138, the Board waives attorney-client privilege. Rather, Wynn Resorts is entitled to the presumption that it acted in good faith, such as by receiving outside counsel in reaching a decision.

In a separately docketed case, the Nevada Supreme Court also decided whether Wynn Resorts waived attorney-client privilege by placing the Freeh report at issue in the initial litigation. That question will be the subject of a future post.